Will the second time be the charm for Albertsons’ IPO?

Discussion
Photo: Getty Images/RiverNorthPhotography
Mar 11, 2020
George Anderson

Albertsons Companies, the second-largest supermarket operator in the U.S., is ready to go public after nearly 15 years of private ownership by Cerberus Capital Management.

The parent company of its namesake chain, Jewel-Osco, Safeway and Vons should be in a strong position as it launches what could be one of the biggest initial public offerings of the year.

The Wall Street Journal reported in January that Albertsons has made strides in reducing its debt level, which stood at $8.34 billion in January (excluding leases), down from $10.52 billion at the same time last year.

The supermarket operator, which has been investing in store remodels and technology upgrades, posted a 2.7 percent gain in same-store sales during the third quarter. It was the eighth consecutive quarter of comp gains for the retailer.

“We are focused on providing our customers with an easy shopping experience, exciting merchandise and friendly customer service in our omnichannel shopping environment, and creating deep and lasting customer relationships,” said Albertsons CEO Vivek Sankaran in a statement at the time.

Albertsons’ private labels remain an area of strength, having grown to 25.6 percent, a new high for the business, in the most recent quarter. Registrations in its Just for U loyalty program were also up 25 percent.

The company’s online business is also growing with combined home delivery and “Drive Up and Go” purchases up 34 percent.

Albertsons has improved its gross profit margin as well, which grew to 28.3 percent in the third quarter as higher private label sales and lower shrink expenses came together at the same time.

In January, Mr. Sankaran said the grocer’s cost reduction and productivity measures were “beginning to take shape” and that Albertsons planned to use the proceeds “to fund strategic growth investments, offset cost inflation and support earnings growth.”

DISCUSSION QUESTIONS: What do you see as the pros and the cons of an IPO for Albertsons? What will be the company’s biggest challenges and opportunities in the next couple of years?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Historically, a retail store’s success was all about location, location, location. Similarly, IPOs are all about timing, timing, timing. "
"Given all this uncertainty, much of Albertsons’ past good work is likely not to pay the kind of dividend investors hoped for."
"Still a large debt in a business that is not growing by leaps and bounds."

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5 Comments on "Will the second time be the charm for Albertsons’ IPO?"


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Mohamed Amer
BrainTrust

Historically, a retail store’s success was all about location, location, location. Similarly, IPOs are all about timing, timing, timing. Sure valuation is important but that gets worked out pre-IPO.

While Albertsons operational numbers show solid improvements and readiness to undergo quarterly public scrutiny, the $19 billion valuation discussed in early January is no longer realistic given the market uncertainties. I expect the IPO will be shelved for the next six months and revisited once greater visibility is available on the reduction of uncertainties and the return of attractive financial markets.

Ryan Mathews
BrainTrust
While it has nothing to do with Albertsons, the timing for an IPO couldn’t be much worse. Not only is the stock market wildly volatile due to the impact of the coronavirus, many analysts were predicting the end of the 11-year-long “bull market” even before the virus hit. So while it is true that Albertsons should be in a good position for an IPO, there is simply no way to predict that market conditions will have returned to the robust performance they’ve enjoyed for the past few years. There’s also no telling how long the virus will disrupt the economy. Maybe, like the flu virus, it will recede in warmer months, and maybe it won’t. The truth is that since this is a “new” — i.e. unstudied — virus, even the experts are divided. The impact of “social distancing” on retail businesses has yet to be calculated, but I think most reasonable people would agree salad bar sales will likely plummet even as sales of hand sanitizers skyrocket. So given all this uncertainty, much of… Read more »
Peter Charness
BrainTrust

The timing couldn’t be worse. However optimism would suggest that grocery stores will do better than most retailers when business settles down and if Albertsons keeps its trends up it will be well positioned for an IPO — later.

Dr. Stephen Needel
BrainTrust

I was hard-pressed to think of a good reason years ago and I remain hard-pressed to come up with a reason why this would be a good idea now. Still a large debt in a business that is not growing by leaps and bounds.

Craig Sundstrom
Guest

If this were an interview — and in a way it is, since an investor will “hire” the stock or not — my question would be: Cerebrus, in what way (or ways) have you improved the operations of these companies? And that answer is….

I don’t think they’ve been made any worse off, though “cost cutting” is always a red flag for me, but the casual observer struggles for a “wow!” moment (and the big problem of course is that privatization hides much data from the public).

The challenges ahead will be what they were a few years ago: intense competition, a growing presence of discounters (Aldi, dollar stores) and Wall Street’s obsession with Amazon … deserved or not.

wpDiscuz
Braintrust
"Historically, a retail store’s success was all about location, location, location. Similarly, IPOs are all about timing, timing, timing. "
"Given all this uncertainty, much of Albertsons’ past good work is likely not to pay the kind of dividend investors hoped for."
"Still a large debt in a business that is not growing by leaps and bounds."

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